Considerations upon the new draft offshore law

General considerations

Several titleholders are preparing to take final investment decisions (‘FIDs’) to develop discoveries both in the shallow and in the deep Black Sea waters; substantial (drilling and re-organizational) efforts have been announced by the only existing Black Sea petroleum producer; in this context, the Romanian legislator initiated a public consultation on a draft law to regulate the petroleum operations of the offshore titleholders (the ‘Draft Law’).

The Draft Law intends to regulate a number of aspects that have raised in the last years sensitive legal discussions (e.g. the competent authority to issue the offshore construction permit, easement rights over the adjacent perimeters/state property, crossing the public beach etc).

 

Applicability

As per the general principles, if adopted, the Draft Law will not apply retroactively: Article 26 para 1 expressly mentions that urbanism permits already obtained will remain in force. Following the same reasoning line, the Well related works, consolidation, maintenance, capital or minor repairs to the offshore platforms that have been already tendered as per the public procurement rules, have been already authorized by the National Agency for Mineral Resources (‘NAMR’) or are under execution stage upon the enactment of the Draft Law will also fall outside the scope of the Draft Law.

 

Works and offshore Well related works

Concept

The Draft Law distinguishes between:

→ Works: a term which encompasses geotechnical drilling as well as construction and decommissioning works related to onshore & offshore communication infrastructure, offshore platforms, plants and other equipment, pipelines and access roads; and

→ Well related works: a term which is restricted to drilling, testing, commissioning and decommissioning as well as any interventions on offshore wells.

Both the Works and the Well related works are expressly declared major objectives of public interest, being essential to the national policies on energy security (such a qualification aims at ‘smoothening’ the investors’ path in obtaining administrative approvals for their offshore activities).

• Urbanism permits for Works and Well related works

Compared to the existing situation, there are no changes proposed with respect to Well related works: NAMR remains the competent regulatory body. The NAMR’s consent replaces the construction permit (as expressly mentioned under Art 3 para 2 of the Draft Law).

With respect to the Works, the Draft Law specifies that the authorization issued by the Ministry of Energy replaces the construction permit. It is a welcome clarification to simplify a long-lasting issue derived from the missing proper legal framework.

Certain derogations are established from the general regime with respect to the urbanism certificates (‘UC’), the approvals, the consents issued for the execution of the Well related works are valid for 36 months with the possibility to extend them for another 24 months (the existing onshore rule: the UC is valid between 6 to 24 months and possibly extended by 12 months).

A special reception procedure is to be adopted by Government Decision (within 90 days). Hopefully it will be issued, despite the numerous negative precedents in other industry fields…

 

Specific aspects

Easement right

On the onshore, the land access has been one of the major hurdles for operators. The situation was improved with the 2016 amendments of the Construction Law no 51/1990; yet, there are still plenty of obstacles delaying/increasing the cost of operations due to permitting & regulatory aspects.

Offshore, there is nothing: no legal framework, no precedents, no experience at the authorities’ level; the only existing offshore platforms/pipelines were built prior to OMV Petrom’s privatization from 2004. As such, uncertainty rules…

The Draft Law establishes an underground, surface and air easement right over the (public or private) property of the state or of the territorial administrative units. Such easement right must NOT be registered with the land book and it is valid for the entire duration of the operations; the operator only needs to notify its access intention with 30 days in advance (and pay proper compensations).

The provisions of the petroleum law regarding access on properties of private owners remain applicable.

Performing operations in adjacent blocks

Another uncertainty is related to situations when operations could not be performed unless entering the water surfaces allocated to an adjacent block/titleholder. The Draft Law (Article 14) sets forth that if necessary, the operator may perform petroleum operations on an adjacent block held by another titleholder provided it notified the rightful titleholder and does not negatively affect its’ neighbour’s operations.

Tax allowances

The Draft Law releases the offshore titleholders from the tax imposed on the extra revenues obtained following the deregulation of the natural gas prices.

Derogatory working time

Taking into consideration the specificity of the offshore activity, the Draft Law included special provisions supporting employer’s position (and enabling certain derogations from normal working time).

 

Local content supporting measures

In line with an international practice, certain provisions have been included to support local content:

• Not just the foreign titleholders (as per the Petroleum Law), but also their non-resident subcontractors will have to set-up a Romanian affiliate;
• Titleholders must purchase goods and services (without a minimum threshold or/and reference/calculation method) from Romanian companies having more than 25% Romanian equity participation (Art. 21 of the Draft Law); yet, given the proposed wording, we believe said obligation may be easily eluded;
• The titleholders must have minimum one quarter Romanian employees; no reference/obligation is made to/onto the service suppliers/subcontractors.

 

Conclusions

Black Sea is coming. Not just the Romanian waters are explored, but also the Bulgarian, Turkish and Ukrainian maritime areas attract investors animated by the discoveries on the Romanian shore. Romania needs the Black Sea projects for its security of energy supply. If played smart, we could develop a hub in the area and significant benefits for the local economy could be harvested for a long time (see North Sea, for example).

Yet private investors seek predictability and stability. The NAMR changed its president three times in just two months upon mid-2017. The Offshore Safety Authority has a new president since November 2017. Such changes do not play well; but the Draft Law, if adopted in its current form (even with its provisions that could be well enhanced), may represent one of those important clarifying elements facilitating investors’ trust and providing the so-necessary regulatory framework.